Cummins Inc. Stock Hits a 52-Week Low: Could It Fall Further?

Cummins Inc. Stock Hits a 52-Week Low: Could It Fall Further?

Source: Cummins

Cummins faces three big challenges right now

1 Worsening international markets

What management said in Q3

“Industry orders in key end markets in Brazil and China are at multi-year lows and showing no signs of improvement in the near-term.”

Tom Linebarger, Chairman and CEO

The two weakest markets right now

Brazil: Industry truck production slumped 53% year over year in Q3, with production hitting its lowest since 2004.

China: Industry demand for medium-and-heavy-duty trucks slipped 24% year over year in Q3. Cummins expects full-year industry sales to decline 30%.

Why it hurts CumminsMarkets outside the

U.S./Canada contribute 40% to its revenue.

Thanks to the slowdown in global markets, Cummins now expects 2015 revenue to be flat to down 2% versus 2% to 4% growth projected earlier.

Source: Cummins Q3 Earnings Presentation

2 Key business losing steam

Engines sales under pressure

Cummins’ engines revenue slipped 10% year-over-year in Q3, with shipments of high-horsepower engines hitting lows not seen since Q3 2009. Key factors were:

Sluggish off-highway markets: Caterpillar slashed its outlook primarily because of lower demand from construction, mining, energy, and power sectors.

A challenging truck market in Brazil.

Why it hurts CumminsEngines: Account for more than 40% of its revenue

The U.S./Canada: Cummins’ largest engine market, contributing nearly 70% to its revenue in Q3

Off-highway markets: Make up nearly one-third of Cummins’ engines revenue

High-horsepower engines: Constitute more than 10% of its engines revenue

These charts say it all

Source: Cummins Q3 Earnings Presentation

3 Currency headwinds

The problem

For a company with a global footprint, a stronger U.S. dollar is a significant headwind as international sales translate into lower revenue when converted to U.S. dollars. Image Credit: M4D Group via Flickr

Why it hurts Cummins

Cummins gets nearly 40% of its total revenue from international markets.

The company’s revenue was down 6% year over year in Q3, 4% of which was the result of currency fluctuations.

Continued strengthening of the U.S. dollar = lower revenue for Cummins.

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